Comcast (CMCSA)

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WHAT HAS CHANGED?

Impact of Coronavirus

Comcast's stock has dropped over 16% since the WHO declared a global health emergency on January 31, 2020, in light of the coronavirus spread to $36 as on 4th May 2020. With the slowdown in industrial and economic activity, the consumer spending power is expected to decline, leading to decreased demand for the company’s already lower cable TV offerings. The launch of Peacock (Comcast’s streaming platform) and people confining themselves to their home due to the spread of coronavirus, proved beneficial for the company over recent months. More people sitting at home amounted to higher demand for streaming services and entertainment. Comcast’s Q3 and Q4 results confirmed this reality with drop in revenues being lower than trends in most of the other industries. Along with relatively better financials and the recently announced Fed stimulus package led to recovery in stock price over recent months and currently stands at $53 (as on 24th February 2021)

FY 2020 Performance

Comcast reported $103.564 billion of revenues in 2020, reflecting a decrease of 5% over 2019, driven by decreases in Theme Parks, Filmed Entertainment and Cable Networks. EPS decreased to $2.61 per share in 2020, lower than $3.13 per share in 2019, driven by lower revenue and high production, operating and administrative cost.

Comcast Hikes Prices on Cable TV and Internet

With this new price hike effective December 18, prices of Broadcast TV would go up from $10 a month to $14.95 a month. The Basic TV package will be increasing from $30 a month to $35 a month, and the internet will be increasing on most plans $3 a month. (The one exception is Gigabit Pro, which will remain $299.95 a month) In all, cable subscribers’ monthly bills will increase by as much as $14 per month, potentially bringing a TV-plus-internet package to nearly $168 more per year.

Comcast Unveils Streaming Service

Comcast recently unveiled its direct-to-consumer streaming service called Peacock, featuring content that will include shows such as The Office and Parks and Recreation. The service was launched in July 2020. An ad-supported version of the service is available for free to Comcast's cable subscribers. Peacock has been able to achieve 22 million subscribers as of the end of November 2020. Shortly after announcing the services, the company also announced that it would make its Flex streaming stick free for cable customers.

Growth In Broadband Revenues Insulating The Company From Cord Cutters

Comcast's Cable TV business provides video, high-speed internet, voice, and security and automation services to residential customers under the Xfinity brand. Video competition from virtual MVPDs has been challenging lately, which resulted in Comcast's residential video subscriber base declining 2% y-o-y and consequently, its video revenues falling 2% y-o-y in 2018. However, the company is working on its high-margin connectivity businesses, residential high-speed Internet and business services, in order to offset this cord-cutting pressure. In 2018, the internet user increased 5% y-o-y. While cord-cutting is likely to weigh on Comcast's revenues, the popularity of Xfinity Double and Triple Play bundling should continue to largely offset these declines. In addition, Comcast is also aggressively pursuing over-the-top (OTT) streaming services, with the launch of Xfinity Stream and the recently rolled out Xfinity Instant TV across markets that the company already serves. Although the company currently does not provide the breakdown for its OTT service, we believe that the streaming service will be instrumental in retaining and attracting consumers for Comcast's cable offerings.

NBCUniversal has become an important growth driver for Comcast

NBCUniversal constitutes approximately 41% of Comcast’s total value and includes the cable and broadcasting networks, theme parks, and movie businesses. NBCUniversal reported revenues of approximately $36 billion for the full year 2018, a 9% jump as compared to the prior year. NBCUniversal’s theme park business is also trending well and is generating stable cash flow for the company. Both the Broadcast Television division and the cable TV business reported stable growth during this period. Consequently, we believe that NBCUniversal will continue to perform exceedingly well for Comcast in the coming quarters.

BUSINESS SUMMARY

Comcast is a global media and technology company that has three broad operating segments. (1) Comcast Cable: one of the largest providers of high-speed internet, video, and voice services in the United States. (2) NBCUniversal: Operates cable networks, broadcast television, filmed entertainment, and theme parks.(3) Sky: Based in Europe, Sky operates video, high-speed internet, voice, and wireless phone services and also runs the Sky News broadcast network and Sky Sports networks.

POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICE

Below are key drivers of Comcast's value that present opportunities for upside or downside to the current Trefis price estimate for Comcast:

Comcast Pay-TV Subscriber Fees: We estimate this figure to grow in the coming years and be around $100 by the end of our forecast period as compared to $91.5 in 2019. However, there could be more than 10% upside to our price estimate if Comcast can raise its subscription prices and the average fees stand around $110 by the end of our forecast period. On the other hand, there could be a downside of more than 5%, if the company fails to pass the rising costs to its customers and the subscriber fees stay range-bound around $80 levels.

Comcast Broadband Subscriber Fees: We estimate this figure to grow from $55 levels currently, to $80 by the end of our forecast period. However, there could be an upside of more than 10% to our price estimate if this figure were to be north of $95 in the coming years. On the other hand, there could be a downside of around 5% to our price estimate, if the company is unable to raise the prices amid increased competition in the broadband market.

For additional details, select a driver above or select a division from the interactive Trefis split for Comcast at the top of the page.

SOURCES OF VALUE

High number of subscribers

Comcast has around 22 million pay-TV subscribers and over 27 million broadband subscribers. Going forward, we expect that broadband subscribers will continue to grow while the pay-TV subscriber base will shrink in the long-term.

High average monthly fees per subscriber

There is quite a difference between fees per subscriber for Comcast's pay-TV and broadband subscribers. Comcast is making on average $90 per month from its pay-TV subscribers compared with $46 per month for broadband subscribers.

KEY TRENDS

Comcast takes streaming more seriously

With pay-TV services facing competition from online streaming companies such as Netflix, many cable TV users are cutting the cord. However, Comcast has been taking steps to cater to this growing market, forging a deal to distribute Netflix on its Xfinity platforms, with plans to launch its own streaming video service, dubbed Peacock in 2020. The company also said that it would offer its Flex streaming box for free to cable customers.

Universal studio's focus on franchises

Comcast's Universal movie studio had a great year in 2017, delivering a number of notable hits. Additionally, 2017 promises to be a good year with a rich slate of movie releases. The most pleasing part of Universal’s success is that the studio has a blueprint to replicate the success it achieved in 2017. The studio continues to build brands with an eye to the future. Universal continues to focus on international markets and is creating movies with popular international franchises such as Fast and Furious, Despicable Me, and Fifty Shades. Universal successfully revived the fan-favorite Jurassic Park franchise with the blockbuster hit Jurassic World and a sequel has been green-lit with a 2018 release date. The studio also has other relatively lower grossing franchise properties such as Pitch Perfect, Jason Bourne, Neighbors, Ted, The Purge, Snow White, and the Huntsman etc.

NBCU is expanding in China with a massive theme park project in Beijing

NBCUniversal, along with Beijing Shouhuan Cultural Tourism Investment Co. (a consortium of four state-owned companies), is building a $3.3 billion Universal theme park in Beijing. The park will be spread over a 300-acre site and eventually expand to 1,000 acres. Along with the theme park, NBCU is developing an entertainment complex and a Universal themed resort hotel. The project dubbed the - Universal Beijing Resort - is likely to open by 2021. China is a sizeable market and it is expected to overtake the U.S. theme parks market by 2020.

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